The Bright Side of the CBO Snafu

In a strange way, yesterday's chaotic and damaging miscommunication between the Congressional Budget Office and the Health, Education, Labor and Pensions Committee is actually good news for health reform. To those of us who don't chair a relevant subcommittee and aren't in the White House's morning meeting, the crucial question is simple: What do the players want? And, maybe more to the point, how little will they settle for?

We now know that they want more than the bill the CBO looked at yesterday. Legislation that expands coverage to 16 million people at a cost of a trillion dollars isn't sufficient for anyone. As I reported earlier, HELP staffers were furious at the results. Robert Gibbs, speaking for the White House, quickly clarified that "this is not the Administration's bill." And the quick Republican attacks were arguably counterproductive: They proved to many reformers that if you're going to spend this much money improving the health-care system, you need the momentum provided by the promise of historic gains -- in this case, universal or near-universal coverage.

No one would argue that HELP's decision to release an incomplete bill to the budget analysts at CBO was wise. But the result was a lot more clarity as to the intentions of the reformers. And that clarity suggests they're not looking to settle for the third of the loaf that the CBO envisioned.

I guess there is no harm in trying for a positive spin. But I think it is a second order consideration. The first order is clear: this was a big blunder. I hope it just gets lost in the noise. My fear is that it is the start of the end of an historic opportunity.

I don't get how this level of miscommunication happens. Is someone at the CBO pissed at someone on the HELP committee.

You would think there would have been a phone call, "Hey your bill is helping people between 150%-400% poverty buy insurance but about 10 million people below 150% will get nothing. This will make your scoring look terrible. You sure you don't want to add that before we score?"

While I am sure there are others who can comment more knowledgeably, I think CBO can't be very accommodating. To maintain their image of impartiality they have to adhere to rigorous standards of communication. Any appearance of favoritism would be a grave mistake on their part. So a "just checking" phone call of the type you suggest is probably out of bounds.

I'm personally pleased that the CBO rebuked the Kennedy plan, though for different reasons than the CBO offered. My chief concern is that the Kennedy plan reenforces the employer-based health care system, which is at the root cause of both the access and the cost problems that should be central to our health care reform effort.

The employer-based system, which is premised on the income tax deduction only being available for employer plans, is broken for many reasons. First, portability. The average American has ten jobs by the time he/she is 42. Needless to say, there are inevitable gaps in employment during which time people are either uninsured, or often forced to pay in post-tax dollars for the very expensive COBRA. Further, health plan at new jobs often have completely different providers, thus forcing people to shift doctors and dentists every time they get a new job. Second, tying health care to employment lowers real income. The primary reason that the productivity gains of the last two decades have not resulted in signifincantly higher real income is that the gains are being siphoned into rising health care costs. Third, there is the market failure of adverse selection. People who are not in employer plans yet still want insurance are a suspect group of disease-ridden miscreants. This raises the cost of private insurance for anyone who wants to join this group, which is exaserbated by the fact that the insurance is also non-deductible. Fourth, there is simply the issue of inefficient taxation of renumeration. High marginal tax rates for ordinary income is about to be taxed at 55% marginal tax rates. Health benefits are taxed at 0%. In this situation, renumeration will inevitably shift to health benefits, which drives health cost inflation. Fifth, the employer system distorts consumer choice. One reason why costs rise every year is that people have limited choice on what health insurance they can pick. Employers don't care, since they just pass on higher health insurance costs in the form of lower salaries. The result is that insurance plans get more ritzy, more procedures get covered, and the end consumer who in a normal market would tame this process via price signals is forced to become complicit in this scheme. Thus, unlike nearly every other market out there, there is no consumer choice in the health insurance market. Thus, price does not communicate intelligent signals, and scarce resources are not efficiently or fairly allocated. Sixth, it discourages employment. Most companies provide their employees with health care. When considering additional hires, companies must also pay a fortune for each new employee in the form of health care, as well as the employer-paid portion of the FICA tax. This also encourages layoffs.

Unfortunately, the Kennedy plan reenforces these negative attributes of the employer-based system. The McCain plan, as well as the Wyden-Bennett plan, would destroy the employer-based system. If Congress were closer to a 50/50 split among the parties, my guess is that there would be a consensus to demolish the employer-based system. Instead, because the Democrats so thoroughly dominate all aspects of Washington, we will probably see a reenforcement of the employer based system.

I understand what you are saying incidentaleconomist and Klein, but if that is the case I think some of their decision are still strange. They randomly decided the individual mandate would $100 a year. That strikes me as favoratism or at least also a violation of a mandate. It should be zero if there is no number (or produce a several numbers based on different possible fine sizes).

How is just making up a number better than saying when they first got the bill to score, "we need a number for what the mandate fine will be or else we must set it at zero."